Bad loans impact the capability of the private sector to make fresh investments and the capability of banks to get fresh money
India's bad loans, which account for over Rs 10 lakh crore, are unlikely to impair the economy.
"The setting up of the Insolvency and Bankruptcy Code (IBC) has put a fear in the minds of promoters that unless there is credit discipline they stand a chance of losing their company," Rajnish Kumar, chairman, State Bank of India, told DNA Money in an interview.
The high mountain of non-performing assets (NPAs) seems to have peaked.
"We have been in this cycle for the past four years. Whatever impact it had to have, it is largely behind us," said Kumar.
Bad loans impact the capability of the private sector to make fresh investments and the capability of banks to get fresh money. "They do get impacted. There is no denying this fact," said the chief of India's largest bank.
This, however, has not stopped banks from doing business.
"We are still looking for good opportunities because a bank's function is to take deposits and lend. We are open to any good viable project. Recognising the stress in the corporate balance-sheets is almost over and we are in the resolution phase," Kumar said.
In the next three to six months, a couple of large accounts may get resolved. "This will be good for the banking system and the economy. There are many things that are going in India's favour," Kumar said.
His conclusions are based on the way the Rs 19 lakh crore asset book of the country's largest bank, which controls a quarter of India's bank lending, is moving. With the Ebidta margins for the steel companies looking up, Kumar believes that the recoverability in the sector will improve.
"When large steel assets are on sale, buyers see more value and there is greater interest," Kumar said.
For public sector banking officials, it is not easy to take a perfect credit decision. The Damocles sword of the vigilance investigations exists. "Your ability to take decisions very fast does get impacted," said Kumar. "In the private sector, you can decide to recover 10 cents to a dollar based on certain assumptions, but I have to run through a process where there are no shortcuts.That is a ground reality," he said.
Loans are generally sanctioned on certain assumptions like what rate the economy will grow or the demand multiply. Some of these assumptions proved wrong. The coal supply for the completed projects got delayed, cheap steel hit our shores impairing the balance-sheets of companies. "On top of all these problems the GDP growth also slowed," Kumar said.
"But India has many favourable factors that will push it to the next phase of growth, which is expected in a few quarters."
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Bad loans impact the capability of the private sector to make fresh investments and the capability of banks to get fresh money. "They do get impacted. There is no denying this fact," said the chief of India's largest bank.
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